GBP 3.8 billion of rated debt securities affected
London, 13 April 2011 -- Moody's Investors Service has today assigned definitive ratings to 7 classes
of notes issued by Arran Residential Mortgages Funding 2011-1 plc:
....EUR 893M A1b Certificate, Definitive
Rating Assigned Aaa (sf)
....US$ 660M A1c Certificate,
Definitive Rating Assigned Aaa (sf)
....GBP 644.7M A2a Certificate,
Definitive Rating Assigned Aaa (sf)
....EUR 538M A2b Certificate, Definitive
Rating Assigned Aaa (sf)
....US$ 400M A2c Certificate,
Definitive Rating Assigned Aaa (sf)
....GBP 1,208M A3a Certificate,
Definitive Rating Assigned Aaa (sf)
....GBP 86.5M Certificate, Definitive
Rating Assigned Aa1 (sf)
RATINGS RATIONALE
The ratings of the notes take into account the credit quality of the underlying
mortgage loan pool, from which Moody's determined the MILAN Aaa
Credit Enhancement and the portfolio expected loss, as well as the
transaction structure and any legal considerations as assessed in Moody's
cash flow analysis.
The expected portfolio loss of 1.2% of original balance
of the portfolio at closing and the MILAN Aaa required Credit Enhancement
of 13.0% served as input parameters for Moody's cash flow
model, which is based on a probabilistic lognormal distribution
as described in the report "The Lognormal Method Applied to ABS Analysis",
published in September 2000.
The key drivers for the MILAN Aaa Credit Enhancement number, which
is in line with other prime UK RMBS Master Trust transactions, are
(i) the weighted average loan-to-value (LTV) of 69.7%,
which is in line with other UK RMBS transactions, (ii) the limited
seasoning of 8.0 months and (iii) the ability for further advances
and product switches to remain in the pool.
The key drivers for the portfolio expected loss are (i) the performance
of the sellers' precedent transactions, (ii) benchmarking with comparable
transactions in the UK market and (iii) the current economic conditions
in the UK in combination with historic recovery data of foreclosures received
from the seller. The high recent vintage concentration with 86.8%
of loans having been originated in the twelve months ending October 2010
has been taken into account in the portfolio expected loss assumption.
The rating addresses the expected loss posed to investors by the legal
final maturity of the notes. In Moody's opinion, the structure
allows for timely payment of interest and principal with respect of the
notes by the legal final maturity. Moody's ratings only address
the credit risk associated with the transaction. Other non-credit
risks have not been addressed, but may have a significant effect
on yield to investors.
The notes are backed by a pool of prime UK residential mortgages originated
by RBS (Aa3 / P-1) and NWHL (not rated, subsidiary of RBS).
At closing the mortgage pool balance consists of approximately GBP 4.55
billion of loans. The Reserve Fund is funded to 2% of the
total Notes outstanding and the total credit enhancement for the Class
A3 notes is 19.4%. Should RBS be downgraded below
A3, the liquidity reserve will be funded to 2% of the initial
balance of the notes at closing.
The V Score for this transaction is Low/Medium, which is in line
with the score assigned for the UK Prime RMBS sector. The V Score
was positively impacted by the transaction being less complex than the
Master Trust structure often seen in the UK Prime sector, although
the Disclosure of Securitisation Collateral Pool Characteristics was above
the sector score. V Scores are a relative assessment of the quality
of available credit information and of the degree of dependence on various
assumptions used in determining the rating. High variability in
key assumptions could expose a rating to more likelihood of rating changes.
The V-Score has been assigned accordingly to the report "V-Scores
and Parameter Sensitivities in the Major EMEA RMBS Sectors" published
in April 2009.
The principal methodologies used in this rating were Moody's Approach
to Rating UK RMBS published in April 2005, Moody's Updated Methodology
for Rating UK RMBS published in September 2009, Cash Flow Analysis
in EMEA RMBS: Testing Structural Features with the MARCO Model published
in January 2006 and Global Structured Finance Operational Risk Guidelines:
Moody's Approach to Analyzing Performance Disruption Risk, published
in March 2011.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
in this transaction.
Moody's Parameter Sensitivities: At the time the rating was assigned,
the model output indicated that all Class A Notes would have achieved
a Aaa even if the expected loss was as high as 3.6% and
the MILAN Aaa CE was as high as 18.2% and all other factors
were constant. The Class A1 and Class A2 would have achieved a
Aaa even if the MILAN Aaa CE was as high as 20.8%,
the expected loss was as high as 3.6% and all other factors
were constant.
Moody's Parameter Sensitivities provide a quantitative/model-indicated
calculation of the number of rating notches that a Moody's structured
finance security may vary if certain input parameters used in the initial
rating process differed. The analysis assumes that the deal has
not aged and is not intended to measure how the rating of the security
might migrate over time, but rather how the initial rating of the
security might have differed if key rating input parameters were varied.
Parameter Sensitivities for the typical EMEA RMBS transaction are calculated
by stressing key variable inputs in Moody's primary rating model.
REGULATORY DISCLOSURES
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Jonathan Livingstone
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Annabel Schaafsma
Senior Vice President
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service assigns definitive ratings to 7 classes of UK RMBS notes issued by Arran Residential Mortgages Funding 2011-1 plc
